India Trade Deficit Drops, Lowest Since 2011

October 10, 2013 Posted by India Briefing Reading Time: 2 minutes

Oct. 10 – Amid a mix of grim news coming out of India recently, a bright spot has emerged as the country’s trade deficit declined to US$6.7 billion last month from US$10.9 billion. According to the Ministry of Commerce and Industry, the deficit stood at US$17.5 billion just last year.

Additionally, exports rose by 11.2 percent over the same period since last year. Even better news is that September was the third month in a row that India has seen double-digit export growth, which it hopes can help further stabilize the rupee.

According to S.R. Rao, India’s Trade Secretary, the country has seen a marked improvement in the export of engineering goods, textiles, iron ore and agricultural products. The main reason for this expansion in exports is the result of a weakened rupee on top of a weakening demand for gold and oil.

India’s markets have responded positively to the export numbers, with the Bombay Stock Exchange’s benchmark S&P BSE Sensex index moving up by 1.3 percent as a result.

On the other hand, the level of imports has declined as of late because the Indian government has taken steps to curb demand for imports. For example, India has implemented an import tax on gold and cut down on speculative purchases of bullion.

In this regard, Secretary Rao noted that “the government has taken conscious steps to curtail imports of nonessential commodities, essentially precious metals. That is working out as the government intended.”

Further, Anubhuti Sahay, an economist at Standard Chartered Bank, believes that exports will continue to improve, adding: “The worst on the trade front is clearly behind us.”

Ms Sahay also believes that the country’s current account deficit could come in below the US$70 billion predicted by the government this current fiscal year.

However, some analysts warn that the trade deficit may grow again in the next few months due to the upcoming festival season and the demand for gold that goes hand-in-hand with that period.

The Indian government has taken numerous steps recently to turn around the economy and prop up a weakening rupee, which include the installation of a new central bank governor which has begun to restore global market confidence in the country.

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